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FASB proposes VIE alternative for private companies

FASB on Thursday formally issued for public comment a proposal that
would exempt many private companies from the requirement to apply
variable-interest entity (VIE) consolidation guidance to lessor
companies under common control.

The proposal, which was originally advanced by the Private Company
Council (PCC), would create an alternative within U.S. GAAP that would
address a common source of frustration for private companies and their
financial statement preparers.

Under the
proposal, Applying Variable Interest Entity Guidance to
Common Control Leasing Arrangements (formerly FIN 46(R) and FAS
167), a private company lessee would have the option not to apply VIE
consolidation guidance when:

The lessor and the private company are under common control;

The private company has a leasing arrangement with the lessor; and

Substantially all activity between the two companies is related to
the leasing activity of the lessor.

Additional disclosures would be required of private companies
that apply this exemption. These disclosures would include:

The key terms of the leasing arrangements.

The amount of debt and/or significant liabilities of the lessor
under common control.

The key terms of existing debt agreements of the lessor under
common control.

The key terms of any other explicit interest related to the lessor
under common control.

Comments will be accepted through Oct. 14 on FASB’s
website. The effective date would be determined after the PCC
considers feedback received on the exposure draft.

“This proposal is intended to help lenders and other users better
align the information used in assessing the financial position of
private companies that prepare financial statements,” FASB Chairman
Russell Golden said in a news release.

After reviewing feedback, the PCC will have an opportunity to make
changes and hold a vote that would forward the final version of the
GAAP exception to FASB. If FASB endorses the exception, the
alternative would be written into GAAP.

Companies that are able to use the exception would continue to apply
other applicable FASB guidance, including Topic 840, Leases,
and Topic 460, Guarantees.

Comment periods expire Friday for three other FASB proposals for
private company alternatives within GAAP that originated with the PCC.

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